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Tip of the iceberg: the role of the banks in the FIFA story

The headlines generated by the U.S. investigation into FIFA reveal allegations of serious corruption at football’s governing body. Beneath the headlines, details are emerging of the crucial role banks played by processing the related payments.

This has two elements:

Key mechanism
for bribe payments. It would have
been almost impossible for the alleged bribery involving FIFA officials to have
occurred without access to the financial system. Indeed, the U.S. Department of
Justice has claimed that the accused relied on the use of “trusted
intermediaries, bankers, financial advisors and currency dealers, to make and
facilitate the making of illicit payments”.[i]

Did banks fail to do key checks? In almost every country, anti-money laundering laws require banks to do a range of checks on their customers, to detect whether the money they handle might be the proceeds of crime, or intended for terrorist groups. At the very least, the allegations involving FIFA officials raise serious questions about whether the banks named in the indictment carried out the checks they are supposed to, and if so, whether they were adequate.[ii] At least three banks, HSBC, Standard Chartered
and Barclays have already announced
internal probes into the payments.[iii]

The wider corruption scandal
involving banks

The involvement of the financial system in the FIFA bribery allegations is symptomatic
of a much bigger problem and a largely hidden truth. Banks play an integral role
in enabling large scale theft from state budgets, by providing a place for
unscrupulous government officials to hide their ill-gotten gains, with
devastating human rights implications. In
the words of a Nigerian anti-corruption investigator “if you know there’s no landing space to land your plane, you don’t
take off in the first place. It’s the same with money: if there is nowhere to
land it once you’ve stolen it, you can’t steal it" [iv]

Key statistics:

A World Bank study looking at a sample of 200 cases of large scale corruption found that governments were at least $56.4bn poorer as a result.[v]

According to research commissioned by the Nigerian government, the country and its citizens have missed out on at least $35 billion over 10 years due to corruption in the oil industry.[vi]This represents more than one year of government spending. Just one tenth ($3.5 billion) could have been used to give a basic eduction to the 5.5 million girls in Nigeria who are currently missing one.[vii]

UN Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally each year is between $800 billion - $2 trillion (2 - 5% of global GDP).[viii]

In 2011 the UK banking regulator (the Financial Services Authority) found that 75% banks were not doing enough to prevent money laundering.[ix]In 2014, it’s replacement (the Financial Conduct Authority) found “significant and widespread weaknesses in most banks’ anti-money laundering systems and controls.”[x]

The cost of corruption

Corruption
is not a victimless crime. It is major problem with a
devastating human cost. Just as FIFA money going missing starves critical
grassroots programmes of funding, theft of state funds traps millions more in
poverty in developing countries. When officials steal from their country’s
coffers, they decimate funds that should be spent on hospitals, schools and
other basic services.

Rich countries are affected
too. Corruption thwarts competition and innovation, and adds to the cost of
doing business around the world, undermining the global economy. A report by the
B Team, a group of international CEOs and business leaders including Richard
Branson and Mo Ibrahim, states “Corruption is bad for business, adding up to
10% to the cost of doing business globally, and is equivalent to a 20% tax on
foreign businesses. It undermines competition and financial stability, and
undercuts investments in human capital and sustainable development”.[xi]Corruption alsoleads to failed states and breeds terrorism, threatening the national security of all countries.

Banks have a history of
breaking the rules

While many
banks do a good job at upholding anti-money rules, a large number do not. This
failure spans a spectrum: from lacking the required systems to spot suspect
funds; to turning a blind eye when risky funds are identified; to knowingly
handling ill-gotten gains. The result is that many banks leave the door wide
open for money launderers.

This raises two main questions:
why are many banks repeatedly breaking the law and/or regulatory standards, and
what can be done to change this? Skewed
incentives lie at the root of the problem. Under the current system, banks can
make significant profit even if they handle tainted funds. There are several reasons for this: on a
global basis the rules are rarely enforced; where penalties are handed out,
they usually do not go far enough; and, senior executives who have oversight of
breaches rarely face financial or reputational consequences themselves. It can even make sense for banks to break the
rules under the present system.

The solutions

We need to change this balance of incentives, so that banks have much more to
lose than they have to gain from handling suspect funds. By far the single most
effective solution would be to hold senior bankers personally responsible when
their banks break the rules. Until the
people who run banks start to lose bonuses, face personal fines and suspension,
or in the most extreme cases go to jail, they will not take the rules
seriously.

Recent policy developments give cause for cautious optimism. This year the UK’s
Financial Conduct Authority will finalise the details of the Senior Managers
Regime, a new measure to require banks to name a senior banker as responsible
for each key risk the bank faces. Under
current proposals this will include giving a senior manager the personal
responsibility for ensuring that the bank complies with anti-money laundering
rules. It is vital that the final policy ensures this is allocated to someone
who reports to the board of a bank.[xii]The EU has passed an updated Anti-Money Laundering Directive which should also give senior executives overall responsibility for the issue, and it is vital each member state implements this in an effective way.[xiii] However, as U.S. laws stand, officials have claimed it is extremely difficult for them to establish legal liability for executives, [xiv]

Adopt a much stronger, and smarter, approach to
enforcing existing anti-money laundering rules.

Establish
adequate anti-money laundering regulations governing banks and others in
countries where these regulations currently do not exist.

Remove
obstacles for banks (such as difficulties in identifying the real, ultimate
owners of companies which they hold accounts for).

Banks should:

Appoint someone from either the board, or senior
management team, to have the overall responsibility for anti-money laundering
regulations, as part of a broader culture change.

Significantly enhance the scrutiny of
accounts held by people with access to government budgets, and who pose a high
risk of money laundering.

Work
closely with each other, governments and a range of actors to solve key
problems.

About Global Witness

Global Witness exposes the hidden links between demand for natural resources,
corruption, armed conflict and environmental destruction. We believe that the only way to
protect peoples’ rights to land, livelihoods and a fair share of their national
wealth is to demand total transparency in the resources sector, sustainable and
equitable resources management, and stopping the international financial system
from propping up resource-related corruption. Our campaigns which focus on the
financial system involve work to ensure that banks stop taking corrupt funds,
including calling for much more robust enforcement of anti-money laundering
regulations, and ending anonymous company ownership.

For a comprehensive look at this issue, with a
range of case studies and examples of banks facilitating corruption and other
serious crimes, and a full set of policy recommendations, see the new Global
Witness report Banks and Dirty Moneywww.globalwitness.org/reports/banks-and-dirty-money

Banks have been listed in the U.S. indictment for a number of
reasons. Sometimes banks are listed for
having processed alleged bribes, or for being used to spend the proceeds of the
bribery; and some of the banks were simply correspondent banks – i.e. one stage
in a chain of payments, and so would have limited access to information on the
underlying nature of the transaction. At
other times the bank is listed for being used as part of the suspected wire fraud
conspiracy, which can include the bank being used to pay contracts which
resulted from a bribe, but which may have seemed legitimate (e.g. the rights to
broadcast football tournaments). As outlined above, none of the banks have been
accused of any wrongdoing so far.

[ii] For an example of transactions which might raise questions, see the BBC investigation looking at how alleged payments were laundered by then FIFA Vice President Jack Warner http://www.bbc.co.uk/news/world-latin-america-33039014 At least three banks, HSBC, Standard Chartered and Barclays have already announced internal probes into the payments.

[iv] For a comprehensive look at this issue, with a range of case studies and examples of banks facilitating corruption and other serious crimes, and a full set of policy recommendations, see the new Global Witness reportBanks and Dirty Moneywww.globalwitness.org/reports/banks-and-dirty-money

[x] See the FCA’s press release for its report “How small banks manage money laundering and sanctions risk” November 2014 http://www.fca.org.uk/news/fca-finds-small-firms-need-to-manage-financial-crime-risks-more-effectively